Populus euphratica Olivier is widely established in arid and semiarid regions but lags in the availability of transcriptomic resources in response to water deficiency. To investigate the mechanisms that allow P. euphratica to maintain growth in arid regions, the responses of the plant to soil water deficit were analyzed at a systems level using physiological and pyrosequencing approaches. We generated 218,601 and 287,120 reads from non-stressed control and drought-stressed P. euphratica leaves respectively, totaling over 200 million base pairs. After assembly, 24,013 transcripts were yielded with an average length of 1,128 bp. We determined 2,279 simple sequence repeats, which may have possible information for understanding drought adaption of woody plants. Stomatal closure was inhibited under moderate drought to maintain a relatively high rate of CO2 assimilation and water transportation, which was supposed to be important for P. euphratica to maintain normal growth and develop vigorous root systems in an adverse environment. This was accompanied by strong transcriptional remodeling of stress-perception, signaling and transcription regulation, photoprotective system, oxidative stress detoxification, and other stress responsive genes. In addition, genes involved in stomatal closure inhibition, ascorbate-glutathione pathway and ubiquitin-proteasome system that may specially modulate the drought stress responses of P. euphratica are highlighted. Our analysis provides a comprehensive picture of how P. euphratica responds to drought stress at physiological and transcriptome levels which may help to understand molecular mechanisms associated with drought response and could be useful for genetic engineering of woody plants.